How to create a financial forecast for a potato farm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your potato farm.
Putting together a potato farm financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your potato farm.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a potato farm?
The financial projections for your potato farm act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your potato farm's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a potato farm financial forecast?
A potato farm's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing potato farm.
If you are creating (or updating) the forecast of an existing potato farm, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new potato farm startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the potato farm to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your potato farm's financial forecast.
The sales forecast for a potato farm
The sales forecast, also called topline projection, is normally where you will start when building your potato farm financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing potato farms), and consider the elements below:
- Weather conditions: The average price of potatoes may be affected by weather conditions such as drought, floods, or extreme temperatures. These conditions can impact the quality and yield of your potato crop, which in turn can affect the supply and demand for your product.
- Crop diseases: Potato crops are susceptible to various diseases, such as blight and scab, which can reduce the quality and yield of your potatoes. This can lead to a decrease in the number of monthly transactions as customers may be less willing to purchase lower quality potatoes at a higher price.
- Competition: The number of monthly transactions may be affected by competition from other potato farms in your area. If there are a large number of potato farms in your region, customers may have more options to choose from, potentially leading to a decrease in your sales and average price.
- Consumer preferences: Changes in consumer preferences can also impact the average price and number of monthly transactions for your potato farm. For example, if there is a trend towards healthier eating habits, demand for organic or locally grown potatoes may increase, leading to a potential increase in your average price.
- Transportation costs: Fluctuations in transportation costs, such as fuel prices, can also affect your potato farm's average price and number of monthly transactions. Higher transportation costs can lead to an increase in your prices, making your potatoes less competitive in the market and potentially decreasing your sales.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
Need a convincing business plan?
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The operating expenses for a potato farm
The next step is to estimate the expenses needed to run your potato farm on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your potato farm's operating expenses should include the following items at a minimum:
- Seed and Fertilizer Costs: These are the costs associated with purchasing seeds and fertilizers for your potato farm.
- Labor Costs: As a potato farm owner, you will need to pay your employees for their time and labor, including wages, benefits, and taxes.
- Fuel and Equipment Maintenance: Running a potato farm requires using tractors and other equipment, which will require fuel and regular maintenance to keep them in good working condition.
- Irrigation Expenses: Potatoes need a consistent supply of water, so you will need to factor in the costs of irrigation systems and water usage.
- Pest Control: Pests can be a major problem for potato farms, so you may need to invest in pest control measures to protect your crops.
- Storage and Processing Costs: After harvesting your potatoes, you will need to store and process them before selling them. This may require specialized equipment and facilities.
- Packaging and Transportation: In order to get your potatoes to market, you will need to package them and arrange for transportation, which may include trucking or shipping costs.
- Insurance: Protecting your potato farm from potential risks and liabilities is essential. Consider investing in insurance to cover your farm and its assets.
- Rent or Mortgage: If you do not own the land that your potato farm is on, you will need to factor in the cost of rent or mortgage payments into your operating expenses.
- Accountancy Fees: Keeping track of your finances and taxes as a potato farm owner can be complicated. Consider hiring an accountant to manage your financial records and file your taxes.
- Utility Bills: Running a potato farm requires electricity, water, and other utilities, which will come with monthly bills that need to be paid.
- Software Licenses: In today's digital age, you may need to invest in various software programs to help you manage your potato farm, such as accounting software or crop management programs.
- Banking Fees: As a business owner, you will likely have banking fees associated with your farm's accounts, such as transaction fees or overdraft fees.
- Marketing and Advertising: In order to sell your potatoes, you will need to invest in marketing and advertising efforts to attract customers and stand out from your competitors.
- Training and Education: As a potato farmer, it is important to stay updated on industry trends and best practices. This may require investing in training and education programs for yourself or your employees.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small potato farm might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a potato farm?
Creating and expanding a potato farm also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a potato farm could include elements such as:
- Land and Property: As a potato farmer, you will need to purchase or lease land for your farm. This is a significant capital expenditure that will impact your financial forecast. Remember to include the cost of any equipment needed for land preparation and maintenance, such as tractors, plows, and irrigation systems.
- Storage and Processing Equipment: Potatoes require proper storage to maintain their quality and freshness. This may include purchasing or leasing storage facilities or investing in processing equipment such as washers, sorters, and packaging machines. These are essential investments to ensure your potatoes are stored and processed efficiently and effectively.
- Vehicles and Transportation: You will need vehicles to transport your potatoes from the farm to the market or processing facilities. This could include trucks, trailers, or other types of transportation equipment. These vehicles are a significant capital expenditure that should be included in your financial forecast.
- Infrastructure and Buildings: Building or renovating infrastructure on your farm, such as barns, sheds, and offices, is another potential capital expenditure. These buildings are necessary for storing and maintaining equipment, as well as providing shelter for employees and animals. Make sure to include the cost of construction, materials, and labor in your financial forecast.
- Irrigation and Water Management: Potatoes require consistent and adequate water supply for optimal growth. This may require investing in irrigation systems, water pumps, and other equipment to manage water usage on your farm. These are important capital expenditures that should be factored into your financial forecast to ensure the success of your potato farm.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your potato farm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your potato farm
The next step in the creation of your financial forecast for your potato farm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a potato farm?
Now let's have a look at the main output tables of your potato farm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your potato farm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a potato farm should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your potato farm's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your potato farm. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow forecast
Your potato farm's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the potato farm:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your potato farm's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your potato farm's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your potato farm's financial forecast?
Creating your potato farm's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial forecasting software to build your potato farm's projections
The modern and easiest way is to use professional online financial forecasting software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Hiring a financial consultant or chartered accountant
Hiring a consultant or chartered accountant is also an efficient way to get a professional potato farm financial projection.
As you can imagine, this solution is much more expensive than using software. From experience, the creation of a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to start around £700 or $1,000 excluding taxes.
The indicative estimate above, is for a small business, and a forecast done as a one-off. Using a financial consultant or accountant to track your actuals vs. forecast and to keep your financial forecast up to date on a monthly or quarterly basis will naturally cost a lot more.
If you choose this solution, make sure your service provider has first-hand experience in your industry, so that they may challenge your assumptions and offer insights (as opposed to just taking your figures at face value to create the forecast’s financial statements).
Why not use a spreadsheet such as Excel or Google Sheets to build your potato farm's financial forecast?
Creating an accurate and error-free potato farm financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own potato farm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your potato farm.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a potato farm. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Financial forecast example
- How to create a sales forecast for a business?
- Financial forecast template for a business idea
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Founder & CEO at The Business Plan Shop Ltd
